PNC Bank v. R.H. Kuhn (memorandum)

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J-A32014-12 NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37 PNC BANK, NATIONAL ASSOCIATION, Appellant v. R.H. KUHN COMPANY, INC., a Pennsylvania Corporation; HS HOLDINGS, LLC, a Pennsylvania limited liability partnership; HS EAST, LLP, a Pennsylvania limited liability partnership; and SOARING EAGLE PARTNERS, L.P., a Pennsylvania limited partnership; CHARTIERS EAGLE MANAGEMENT, LLC, a Pennsylvania limited liability company; CHARTIERS EAGLE HOLDINGS, L.P., a Pennsylvania limited partnership; EAGLE EYE ASSOCIATES, L.P., a Pennsylvania limited partnership; HS TERRITORIES MANAGEMENT, LLC, a Pennsylvania limited liability company; HS TERRITORIES, LLC, a Pennsylvania limited liability company; and ROBERT H. KUHN IRREVOCABLE TRUST u/t/a Dated August 2, 1996, THE PITTSBURGH ECONOMIC AND INDUSTRIAL DEVELOPMENT CORPORATION AND THE URBAN REDEVELOPMENT AUTHORITY OF PITTSBURGH AND THE PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY, Appellees : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : IN THE SUPERIOR COURT OF PENNSYLVANIA No. 480 WDA 2012 Appeal from the Order entered on August 15, 2011 in the Court of Common Pleas of Allegheny County, Civil Division, No. GD-10-021712 J-A32014-12 PNC BANK, NATIONAL ASSOCIATION, v. R.H. KUHN COMPANY, INC., a Pennsylvania Corporation; HS HOLDINGS, LLC, a Pennsylvania limited liability partnership; HS EAST, LLP, a Pennsylvania limited liability partnership; and SOARING EAGLE PARTNERS, L.P., a Pennsylvania limited partnership; CHARTIERS EAGLE MANAGEMENT, LLC, a Pennsylvania limited liability company; CHARTIERS EAGLE HOLDINGS, L.P., a Pennsylvania limited partnership; EAGLE EYE ASSOCIATES, L.P., a Pennsylvania limited partnership; HS TERRITORIES MANAGEMENT, LLC, a Pennsylvania limited liability company; HS TERRITORIES, LLC, a Pennsylvania limited liability company; and ROBERT H. KUHN IRREVOCABLE TRUST u/t/a Dated August 2, 1996, THE PITTSBURGH ECONOMIC AND INDUSTRIAL DEVELOPMENT CORPORATION AND THE URBAN REDEVELOPMENT AUTHORITY OF PITTSBURGH AND THE PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY, APPEAL OF: THE PITTSBURGH ECONOMIC AND INDUSTRIAL DEVELOPMENT CORPORATION AND THE URBAN REDEVELOPMENT AUTHORITY OF PITTSBURGH AND THE PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY, Appellants -2- : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : IN THE SUPERIOR COURT OF PENNSYLVANIA No. 481 WDA 2012 J-A32014-12 Appeal from the Order entered on August 15, 2011 in the Court of Common Pleas of Allegheny County, Civil Division, No. GD-10-021712 BEFORE: MUSMANNO, WECHT and COLVILLE*, JJ. MEMORANDUM BY MUSMANNO, J.: Filed: April 25, 2013 The Pennsylvania Industrial Development Authority ( PIDA ), the Urban Redevelopment Authority of Pittsburgh ( URA ), the Pittsburgh Economic and Industrial Development Corporation ( PEIDC ) (collectively the Government Lenders ), and PNC Bank, National Association, ( PNC Bank ) appeal and cross-appeal from the Order granting in part and denying in part the Government Lenders Motion to determine distribution of proceeds pursuant to an agreement addressing lien priorities. We affirm. The trial court has set forth an extensive recitation of the factual and procedural history in its Opinion, which we adopt herein for the purpose of this appeal. See Trial Court Opinion, 8/17/11, at 1-10. Relevant to this appeal and as noted in the trial court s Opinion, PNC Bank filed a Complaint in confession of judgment against various Roomful Express related parties ( the Defendants ) due to the default of loans provided by PNC Bank. Thereafter, the trial court granted PNC Bank s emergency Motion for the appointment of a receiver to sell assets of the Defendants for the benefit and protection of the Defendants creditors. The receiver, Compass Advisory Partners, LLC, sold the personal property assets * Retired Senior Judge assigned to the Superior Court. -3- J-A32014-12 belonging to R.H. Kuhn Company, which generated sales in excess of $3 million. The receiver presented these proceeds to PNC Bank, which applied the proceeds to its subordinated indebtedness. PNC Bank s subordinated indebtedness was fourth in the lien priority behind PIDA, URA, and the Redevelopment Authority of Allegheny County ( the Authority )1 pursuant to the Intercreditor Agreement ( the Agreement ). The Government Lenders filed a Motion to intervene, which was granted. The Government Lenders also filed a Motion to determine distribution of sale proceeds pursuant to the Agreement. The Government Lenders argued that pursuant to the Agreement, PNC Bank misapplied the proceeds from the sale of assets belonging to R.H. Kuhn. The Government Lenders stated that the $3 million should have been applied to the superior indebtedness. The Government Lenders also sought to exclude a SWAP termination charge ($1,117,000), a forbearance fee, and legal fees from PNC Bank s calculation of the superior indebtedness. The Government Lenders claimed that these charges and fees must be considered subordinated indebtedness under the Agreement. On August 15, 2011, the trial court granted in part and denied in part the Motion. The trial court specifically found that PNC Bank was not required to apply the R.H. Kuhn proceeds to the superior indebtedness. The trial court 1 We note that PNC Bank misidentifies PIDA as the Authority in its brief. See Brief for Cross-Appellant at 1. Based upon the documents before this Court, the Authority is not a party to the appeal. -4- J-A32014-12 also found that the SWAP termination charge was not included in the superior indebtedness. The Government Lenders filed a timely Notice of appeal.2 Thereafter, PNC Bank filed a cross-appeal.3 On appeal, the Government Lenders raise the following question for our review: Whether the trial court erred in holding that PNC Bank ¦ could apply the proceeds of the liquidated collateral to the subordinated indebtedness[?] Brief for Appellants at 1. On cross-appeal, PNC Bank raises the following question for our review: Did the lower court err in failing to include a SWAP termination charge as part of PNC [Bank s] senior secured indebtedness where the intercreditor agreement (by reference to a credit agreement and mortgage) expressly includes the SWAP termination charge as part of PNC [Bank s] senior secured debt? Brief for Cross-Appellant at 2. The claims of PNC Bank and the Government Lenders rest upon the trial court s interpretation of the Agreement. In addressing this claim, we are mindful that the interpretation of a contract is a question of law. 2 It appears that the Government Lenders filed a Motion for reconsideration of the trial court s August 15, 2011 Order on August 17, 2011. However, prior to a ruling by the trial court, the Government Lenders filed a timely Notice of appeal. According to the docket, the trial court did not issue a ruling on the Motion. 3 These appeals were originally filed with the Commonwealth Court of Pennsylvania. However, the appeals were transferred to this Court on March 22, 2012. -5- J-A32014-12 Therefore, our standard of review is plenary. Profit Wize Marketing v. Wiest, 812 A.2d 1270, 1274 (Pa. Super. 2002) (citation omitted). The Government Lenders contend that the trial court erred in concluding that PNC Bank could apply the R.H. Kuhn proceeds to the subordinated indebtedness.4 Brief for Appellants at 6. The Government Lenders argue that the Agreement plainly states that all post-default payments received by PNC Bank must be applied to the superior indebtedness. Id.; see also id. at 10-11 (wherein the Government Lenders argue that payments by PNC Bank to the superior indebtedness would provide a tangible benefit for them). The Government Lenders point to Sections 4(a) and (c) and 6 to support their argument. Id. at 6-13. The Government Lenders specifically assert that Section 4(a) requires that PNC Bank apply any payments to the superior indebtedness with Section 4(c), relating to the proceeds of Other Agent Collateral, providing the only exception to this application of the payments. Id. at 6-9, 12-13. The Government Lenders claim that the R.H. Kuhn proceeds are not considered Other Agent Collateral. Id. at 9. The Government Lenders also argue that the trial court erred in determining that Section 6(b)(ii) granted PNC Bank unlimited rights to the R.H. Kuhn proceeds. Id. at 9-10. The Government 4 We note that PIDA did not have a lien on the personal property in question in this case. See Agreement, 9/10/07, at 3 (stating that the PIDA Note was secured by an Open-End Mortgage dated May 18, 2006, from the PEIDC on real property); Trial Court Opinion, 8/17/11, at 4 (same); see also Agreement, 9/10/07, at 7-10 (listing the priority of the mortgages and security interests of the various parties). -6- J-A32014-12 Lenders maintain that the language of Section 6(b)(ii) excepts from its coverage collateral that is subject to the Agent Security Agreement, 5 which includes the R.H. Kuhn proceeds. Id. at 10; see also Reply Brief for the Appellants at 12. The Government Lenders additionally claim that the prohibition on the marshaling of assets6 does not apply to the R.H. Kuhn proceeds. Brief for Appellants at 11-12. When interpreting the language of a contract, the intention of the parties is a paramount consideration. In determining the intent of the parties to a written agreement, the court looks to what they have clearly expressed, for the law does not assume that the language of the contract was chosen carelessly. When interpreting agreements containing clear and unambiguous terms, we need only examine the writing itself to give effect to the parties intent. The language of a contract is unambiguous if we can determine its meaning without any guide other than a knowledge of the simple facts on which, from the nature of the language in general, its meaning depends. When terms in a contract are not defined, we must construe the words in accordance with their natural, plain, and ordinary meaning. As the parties have the right to make their own contract, we will not modify the plain meaning of the words under the guise of interpretation or give the language a construction in conflict with the accepted meaning of the language used. Wiest, 812 A.2d at 1274-75 (citations and quotation marks omitted). Pursuant to the Agreement, the personal property business assets, including, inter alia, the R.H. Kuhn proceeds, were secured in the security 5 We note that PNC Bank is referred to as Agent in the Agreement. See Agreement, 9/10/07, at 1. 6 The rule of marshaling assets is [a]n equitable doctrine that requires a senior creditor, having two or more funds to satisfy its debt, to first dispose of the fund not available to the junior creditor. BLACK S LAW DICTIONARY 1359 (8th ed. 2004). -7- J-A32014-12 agreements with PNC Bank, the Authority, and the URA. See Agreement, 9/10/07, at 4, 5, 6-7; see also Government Lenders Motion, 5/5/11, at 4, 5, 7. PNC Bank had the first lien on all personal property business assets while the URA and the Authority shared pro rata second lien priority. See Agreement, 9/10/07, at 9; see also Trial Court Opinion, 8/17/11, at 9; Government Lenders Motion, 5/5/11, at 8. Relevantly, the Agreement states that [t]he liens and security interest of the Agent Security Agreement are ¦ superior to the liens and security interests of the URA under the URA Security Agreement and the liens and security interests of the Authority under the Authority Security Agreement ¦. Agreement, 9/10/07, at 9. The Agreement did not contain any limitation to PNC Bank s first lien over all personal property business assets. Indeed, in their Motion, the Government Lenders admitted that the Agreement was silent as to the application of the proceeds from the liquidation [of the business assets]. Government Lenders Motion, 5/5/11, at 11. Thus, PNC Bank s rights as first lienholder on personal property business assets are unfettered. The Government Lenders reliance upon Section 4(a) to support their contention that all post-default payments, including the R.H. Kuhn payments, must be applied to the superior indebtedness is without merit. The trial court addressed this contention as follows: [Section 4(a)] only provides that payments received by PNC [Bank] from Chartiers, as Beneficial Owner of the Real Property, must be applied to the Superior Indebtedness following an event of default. Chartiers, as a real estate holding company, owned -8- J-A32014-12 only the warehouse Real Property. Payments from Chartiers do not involve personal property because Chartiers owned no personal property. R.H. Kuhn, as the Industrial Occupant, owned all of the personal property, including the furniture and equipment. Trial Court Opinion, 8/17/11, at 13. Upon reviewing the Agreement, we agree with the sound reasoning of the trial court. See id. Furthermore, the Government Lenders claim that Section 4(c) is the sole exception to Section 4(a) is irrelevant due to the fact that Section 4(a) does not apply to R.H. Kuhn proceeds. In any event, the plain language of Section 4(c) does not state that it acts as the sole exception to Section 4(a). Accordingly, we conclude that neither Section 4(a) or (c) limits PNC Bank s rights as first lienholder in the personal property business assets. Similarly, the Government Lenders claims regarding the trial court s reliance upon Section 6(b)(ii) is without merit. Section 6(b) states the following, in relevant part: Each of PIDA, the URA, the Authority ¦ hereby acknowledges and agrees (i) that the Agent has been granted a lien on and security interest [in] collateral, and guaranties, for the repayment of the Term Notes 1 and the Other Agent Indebtedness by the Beneficial Owner, the Industrial Occupant and other parties which consists of property, real and personal, and other undertakings that do not constitute the Premises, the Lease and other property of the Beneficial Owner or the Industrial Occupant described in the Agent Mortgage, the Agent Assignment and the Agent Security Agreement (the Other Agent Collateral ), and (ii) that this Agreement shall not limit any rights, privileges or immunities of the Agent to proceed to enforce the liens or encumbrances granted to the Agent in and to any such collateral, except the collateral owned by the Beneficial Owner or the Industrial Occupant[,] the subject of the -9- J-A32014-12 Agent Mortgage, the Agent Assignment and the Agent Security Agreement as expressly set forth herein. Agreement, 9/10/07, at 11-12. The Government Lenders argue that under Section 6(b)(ii), the Agreement does not limit the rights of PNC Bank except for, inter alia, the collateral owned by R.H. Kuhn, which is the subject of the Agent Security Agreement. 7 However, the Government Lenders have not demonstrated that Section 6(b)(ii) modified PNC Bank s first lien priority over personal property business assets. Indeed, Section 6(b)(ii) only provides an indefinite exception, but does not explicitly state that PNC Bank must apply the personal property business assets to the superior indebtedness. Thus, the Government Lenders have not demonstrated that Section 6(b)(ii) limits PNC Bank s application of the R.H. Kuhn proceeds. Finally, in Section 6(b)(ii), the Government Lenders expressly waived any right or claim that PNC Bank exercise or conduct marshaling of assets of the Beneficial Owner or the Industrial Occupant or any other party to pay the Term Notes 1 or the Other Agent Indebtedness. Agreement, 9/10/07, at 12. The Government Lenders argue that the marshaling provision is only 7 We note that PNC Bank disputes the Government Lenders analysis of Section 6(b)(ii) with regard to the interpretation of in and to such collateral. Brief for Cross-Appellant/Appellee at 15. PNC Bank argues that the Government Lenders position that this phrase refers to Other Agent Collateral is incorrect. Id. PNC Bank states that because Other Agent Collateral was defined in the prior clause, the parties would have utilized that phrase if the parties intended to do so in Section 6(b)(ii). Id. Regardless of the interpretation of the phrase in and to such collateral, the resolution in this case is unchanged. - 10 - J-A32014-12 applicable to Other Agent Collateral. However, the Agreement does not utilize the terms Other Agent Collateral as defined in the Agreement in the marshaling provision. Instead, the Agreement utilizes the term assets, of the Beneficial Owner (Chartiers) or the Industrial Occupant (R.H. Kuhn) in the provision. The Government Lenders have not demonstrated that this language should be narrowly construed or that the provision is inapplicable in this case. Based upon the foregoing, the Agreement clearly states that PNC Bank had first lien priority over the R.H. Kuhn proceeds, without reservation, and could apply those proceeds in any manner it desired.8 The Government Lenders next contend that the trial court failed to account for PNC Bank s course of conduct in receiving and applying payments from R.H. Kuhn. Brief for Appellants at 14. The Government Lenders argue that PNC Bank utilized Section 4(a) in applying the R.H. Kuhn payments to the superior indebtedness. Id. at 14-15. The Government Lenders assert that under the Uniform Commercial Code, the restriction under Section 4(a) on the source of payments (Chartiers) was inapplicable due to PNC Bank s prior actions. Id. at 15-16. Initially, PNC Bank claims that the Government Lenders waived this contention by failing to raise it in the trial court. See Pa.R.A.P. 302(a) (stating that [i]ssues not raised in the lower court are waived and cannot be raised for the first time on appeal. ). Upon our review of the record, we 8 We may affirm the trial court s decision on any basis. Hutt, 863 A.2d 1160, 1170 (Pa. Super. 2004). - 11 - See Devine v. J-A32014-12 conclude that the Government Lenders did not raise this contention in their Motion and do not cite to any other place in the record where such a contention was raised in the trial court. Furthermore, the trial court did not address this contention in its Opinion addressing the Motion. Thus, the Government Lenders course of performance contention is waived on appeal. See Gustine Uniontown Assocs., Ltd. ex rel. Gustine Uniontown, Inc. v. Anthony Crane Rental, Inc., 892 A.2d 830, 836 (Pa. Super. 2006) (stating that appellant s claims were waived where the claims were not raised before the trial court and the trial court failed to indicate any awareness of the claims); see also Sovich v. Estate of Sovich, 55 A.3d 1161, 1165 (Pa. Super. 2012) (same). In its cross-appeal, PNC Bank contends that the trial court erred in failing to include the SWAP charge as part of the superior indebtedness. Brief for Cross-Appellant/Appellee at 22, 24-25. PNC Bank argues that all SWAP fees and charges were recoverable under the warehouse mortgage. Id. at 24. PNC Bank asserts that under Section 2(a) of the Agreement, the warehouse mortgage was a part of the superior indebtedness. Id. PNC Bank claims that the SWAP charge is not considered Other Agent Indebtedness, which would make the charges part of the subordinated indebtedness pursuant to Section 2(b). Id. at 24-25. Here, the trial court has thoroughly addressed PNC Bank s contention and determined that it is without merit. See Trial Court Opinion, 8/17/11, - 12 - J-A32014-12 at 11-13. We adopt the sound reasoning of the trial court for the purpose of this appeal. See id. Order affirmed. - 13 -

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